Managing Pricing with International Customers

Companies selling internationally often have to deal with customers either buying from them in multiple countries or customers exploiting price differences between countries. Consumer goods manufacturers must deal with large retailers, chemical manufacturers with large manufacturers who buy in many geographical locations. Even stationary providers have international buying teams trying to find better deals on office supplies. A recent survey showed that companies invest 7 times more (in people, technology, training) in international procurement than those companies who invest in international sales teams.
The problem for the sellers is clear: they must face buyers who will compare prices for products or services across a number of geographical locations and exploit any differences. This puts pressure on profits as the supplier, if accepting the lower price, is no longer able to reap the profits from the high-priced markets, but only the low-priced markets.
So can’t they just harmonize prices and sell to international customers at one single, harmonized price? Yes and No. In cases with just a single buying and supply point, there can be a single price. However this is not really what this article is about, nor is it about the challenge in many industries. The problem occurs when customers buy in many local markets. Just like price differentiation makes sense in a single-country, national market, based on what customers are willing to pay, international price differentiation also makes sense. In some markets (local) customers are willing to pay more, and might demand premium products or services on top. In other markets, there is heavy competition or no customer loyalty, so prices will be lower. But a differentiated model overall does not always fit with a global customer’s demand for harmonized prices, especially if a harmonized global customer price creates gaps versus differentiated local prices.
It is in many cases possible to maintain differentiated pricing between markets, using a variety of techniques and arguments. While not all will be applicable in all situations or all organizations, here are some ideas:
 
  • Use the price waterfall structure to harmonize some aspects of prices to global customers while using other building blocks to differentiate net net prices. E.g. have a uniform on-invoice price across markets for the given customer, but differentiate actual net net prices by offering different off-invoice rebates in local markets for customers performing local activities to “earn” those rebates
  • Product differentiation or service-bundling: essentially make the product specific to the local market. In some industries that can work well, whereas in others it is ignored by sophisticated buyers comparing the Base product (i.e. the product without local differentiators)
  • Value-added services: offer services locally that can only be delivered locally and thus only should be considered when pricing locally
  • Arguing that cost bases are different in different markets and so should prices be (even if you are doing value-pricing)
  • Argue that the customer’s resale prices (in e.g. retail or industrial input markets) also vary by country, and therefore it should be accepted/understood that your prices differ.
  • Focus on value rather than costs and price, and build local market cases for how your customer can achieve better sales prices with their customers.
  • Stall or delay harmonization, as time = money. The more you can delay a time where prices get harmonized the longer you can reap the profits of higher prices in some markets.
  • Demand from the customer that you must increase prices in low-priced markets so both sides are equally well off in an harmonization scenario (often, they cannot convince their local people to accept a 20% price hike, even if they on the other hand could get a 20% price reduction in a high-price country)
  • Allow negotiations to happen locally, maybe even removing the option for global negotiations: if there is nobody in the sales organization to negotiate a global price with (in reality or just what is said to the customer), then it is more difficult to force through global pricing.

Stratinis has substantial experience in helping all kinds of companies manage their local and international prices, with numerous projects both as strategic advisors and software implementers. Please get in touch to learn more about how we can help you.

Setting Pricing by Country

More and more companies sell outside their home country. Not only has it become easier and cheaper to reach markets around the world but often a specific customer segment in Germany has more in common with a specific customer in France or UK rather than between two different customer segments in Germany. This means there is a good business case for selling abroad, for both small as well as large corporations.

 
When pricing internationally, there are some common pitfalls and challenges that most companies face:  
  • How to proactively set prices by country? How do I optimize my prices?
  • If in an established business, prices often differ by country/region. This is not necessarily a bad thing but can lead to problems with customers who might exploit those price differences if they can.
  • How to deal with currencies: should we price in one single currency (the “home” currency e.g. USD) or should we price in local currencies?
  • Who should decide prices: Headquarters or local organizations?
  • How to communicate prices in different markets when the customers and market conditions differ? When value perceptions or competitive situations are different

While there is obviously not one single answer to fit all corporations, some best practices and ideas do exist. In this article we are looking at how you can proactively set prices by country and manage different market conditions. 

In industries with truly global customers, pricing is about managing that these customers are able to either get their global supply from one point or demand harmonized prices in different countries: Here it is often important to be able to provide or communicate some sort of “harmonized” price to the global customer, as they will compare the prices they pay around the world and strike down any (considerable) differences. But it doesn’t always mean having the same net net price in B2B; differences can still exist. The answer lies in geographical clustering/segmentation as well as using the full price waterfall to differentiate discounts. Often, global customers can be swayed by that there ARE regional differences and thus net net prices are permitted to differ between regions. Also, you can use discounts and rebates to provide different net net prices by only offering specific discounts locally/when the customer does something for you locally.
  
In markets where local decision making is important: Here the best practice model is often to introduce an internal price corridor, where local organizations are allowed to price a certain product inside a corridor of a maximum price and a minimum price. As long as they stay inside that band, they have (nearly) full freedom, but they need HQ permission to go outside the corridor. And in complex organizations there can be several corridors per product or product category.
  
In markets where some degree of centralization is needed, but also leaving degree of adaptability to local conditions, a more and more prevalent model is to make a “Price Build-up” model, where various building blocks, including country factors, are combined into a calculated theoretical price per market. Example: CountryPrice = Factor 1 + factor 2 + factor X etc. As the factors vary, the final price varies too. Factors can then cover all kinds of situations but for international pricing typically involve topics such as competitive level, strategic importance (e.g. emerging vs mature) etc.
  
Stratinis has substantial experience in helping all kinds of companies manage their local and international prices, with numerous projects both as strategic advisors and software implementers. Please get in touch to learn more about how we can help you.